General Motors Corp. agreed Monday to sell a majority share of its credit arm for $14 billion, a defensive move that analysts said would fund employee buyouts and help the beleaguered automaker's balance sheet.
Although GM would gain some much needed cash, it also would give up control of its only profitable division.
"This is about restructuring our business so we can be robustly profitable in the future, so we're not so balanced on a razor's edge," GM Chairman and Chief Executive Rick Wagoner said at a news conference.
Cerberus Capital Management, a hedge fund, leads the investor group that would buy 51% of General Motors Acceptance Corp. The group includes Citigroup Inc.
Analysts were generally supportive of the deal -- the automaker put GMAC up for sale last fall -- but the stock market wasn't enthusiastic. GM's shares fell $1.13, or 5.3%, to $20.14.
"The patient is definitely looking a little better, but he's not out of intensive care yet," said Shelly Lombard, auto industry analyst with GimmeCredit, a New York-based corporate bond research firm.
GM, which had a loss of $10.6 billion last year and continues to lose sales to Toyota Motor Corp. and other Asian rivals, plans to close a dozen plants and cut 30,000 hourly jobs in the U.S. in the next three years. To accelerate the cutbacks, last month GM offered buyouts to 113,000 of its hourly workers.
GM's fortunes also are tied to Delphi Corp., its primary supplier of parts and a former unit of GM. Delphi has asked a U.S. Bankruptcy Court to void its union contracts and the United Auto Workers has threatened to strike if the judge does away with the current labor agreement. A strike at Delphi would probably force GM to shut its factories, analysts have said.
GMAC, which finances the purchase of houses as well as cars, brought in a much-needed $2.4 billion in profit to GM last year, while the auto unit lost $12.9 billion. But with GM's future continually in question, management felt it had little choice but to put the subsidiary up for bid.
One goal of the sale was to get GMAC a credit rating that was higher than GM's junk level, but that doesn't seem imminent. Both Standard & Poor's and Moody's said Monday that GMAC's rating would remain below investment grade.
The rating companies had been hoping the buyer of the majority stake would be a financial institution that would run GMAC as a business, rather than a more passive private equity group, Lombard said. Without an investment-grade rating, it will be more difficult for GMAC to borrow money.
